Other common terms used are: shelf corporation, shelf company or aged corporation. There are terms used to describe a company or corporation that was created and left alone without any business activity. The idea is that a company or corporation that has been around longer can get business credit and financing easier.
So these shelf corporations are created, allowed to age, and then sold to people who want to start a new company. This allows the new owners to get a company that has been around longer on paper, thus making it easier to get a company started without going through all steps in creating a new one.
A few reasons some business start-ups opt to buy a shelf corporation are valid on the surface, such as:
- Saving time to create a new corporation. In years past, it could take months to establish a corporation, but in recent times, it is actually quite easy.
- A corporation with a longer history can have more contract options available since some restrict new businesses from bidding on contracts.
- Creating an appearance of age to boost investor confidence.
- Gaining easier access to investment capital or corporate credit.
There are a few things to beware of if someone is purchasing a shelf corporation strictly for investment capital or corporate credit. It is possible that a corporation was put on the shelf by the original owners because of bad financial decisions. Therefore, it is very important to check the credit history of any aged corporation you might be interested in purchasing.
In addition, financial institutions look at a credit history to see positive activity. No recent credit history is not always good news. Just another thing to consider.
A quick search on the Internet and you will find several companies selling aged corporations claiming a quick fix to business credit. Beware of claims that seem to go to be true. If credit bureaus learn about a company that has been repurchased they will list it as a ‘re-aging’ corporation to reestablish a credit history.